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Entries tagged "Taxes"

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Taxing Work Too Much: Los Angeles Times Op-Ed by Sam Pizzigati and Bob Lord

June 20, 2013 ·

In an op-ed the Los Angeles Times published today, IPS associate fellow Sam Pizzigati and Phoenix tax lawyer Bob Lord pinpoint what's truly unsustainable about the nation's tax system. Taxes on labor are rising while taxes on wealth are declining and an increasing share of wealth isn't subject to any taxes at all.

Pizzigati edits Too Much, the Institute for Policy Studies' weekly publication on excess and inequality and writes a weekly column for OtherWords, the Institute's national editorial service. Lord is an OtherWords contributor.

Los Angeles Times masthead

Happy Birthday, Dear Income Tax

February 25, 2013 ·

flickr/jpconstantineau

Cross-posted from The American Prospect's website.

In February 1913, exactly a century ago, the Sixteenth Amendment gave Congress a constitutional green light to levy a federal tax on income. Later that same year, lawmakers made good on that opportunity. An income tax has been part of the federal tax code ever since.

So what can we learn, as progressives, from this first century of income taxation?

Lesson One

Steeply graduated income tax rates can help societies do big things.

A half-century ago, America’s federal income tax rates rose steadily—and quite steeply—by income level, with 24 tax brackets in all. On income roughly between $32,000 and $64,000, in today’s dollars, couples in the 1950s faced a 22 percent tax rate. On income that today would equal between $500,000 and $600,000, affluent Americans faced a tax rate of 65 percent. The highest 1950s tax rate, 91 percent, fell on annual income that would today exceed $3.2 million.

Today, our federal tax rates rise much less steeply. The current top rate? The “fiscal-cliff battle” earlier this winter raised the top federal rate on individual income over $400,000 from 35 to 39.6 percent, less than half the 91 percent top rate in effect through the Eisenhower years.

Those high tax rates in the middle of the 20th century made a huge difference. The revenue these tax rates generated funded new government programs like the justly celebrated G.I. Bill. Within a single generation, the United States went from a nation two-thirds poor to a nation two-thirds middle class. Americans saw the difference that government can make—and felt that difference personally.

Most Americans today, by contrast, don’t expect much from their government. And for good reason. Most of us around today haven’t seen our government undertake any major new initiative improving the quality of the lives we lead. In this low-expectations political environment, conservative lawmakers demand endlessly lower income taxes for everybody, at every opportunity, and mainstream liberals dare not even hint at raising taxes on “middle class” incomes under $250,000.

But back in our steeply graduated tax-rate past, politicians did dare talk about higher taxes, and middle class Americans didn’t much mind paying those taxes—for two reasons. They saw big results from the tax dollars they paid. They also knew that America’s wealthiest were sacrificing at tax time, too. 

We don’t do big things in America anymore. But we could, if we made paying taxes politically palatable again. Steeply graduated income tax rates helped work that magic a half-century ago. They could work that magic again.

Read the rest of this article on The American Prospect's website.
 

Obama 2.0: Yes We Can Raise Taxes

January 18, 2013 ·

Republicans seem to have something against tax increases. I get that. But it's still not crazy to think we can win some important revenue battles during Obama 2.0. And given this country's pressing needs – from repairing our infrastructure to rehiring teachers – it would be crazy not to try.

President Obama discusses tax deal. Photo: Official White House photo by David Lienemann.

A big question, of course, is how to peel off the 17 House Republicans needed to win anything (assuming all Dems and President Obama are in favor). Openings will come, though, when Republicans need votes from across the aisle on something or other. The even more important challenge is to push progressive reforms into the center of the debate so they get plucked when the stars are aligned.

Here are four that are not only solidly progressive but also have bipartisan potential:

1. Close the carried interest loophole

OK, people, if we can't fix this one during the second Obama administration, I'm giving up on Washington once and for all and becoming a goatherder. How can we continue to allow gazillionaires to pay only a 15 percent tax rate on the profit share ("carried interest") they get paid to manage hedge and private equity funds?

Ray Dalio of Bridgewater Associates, for example, was the highest-earning hedge fund manager in 2011, raking in $3 billion. Forbes calculates that if Dalio had paid ordinary income tax rates, he would have contributed an extra $450 million to the Treasury.

The loophole is so off-the-charts absurd even some hedge fund managers are ready to give it up. Bill Ackman, of Pershing Square Capital, has said he expects the loophole to disappear and thinks his peers won't even mind that much.

Formerly problematic Dems have also changed their tune. Back in 2007, a fix passed the House but never made it through the Democratic-controlled Senate because of obstructionism from Senator Chuck Schumer (D-NY). Thankfully the Senator from Wall Street land has had a rethink.

2. Cap the deductibility of executive pay

The more corporations pay their CEO, the less they owe in taxes. A 1993 law aimed to fix this perverse incentive by capping executive pay deductions at $1 million. The problem is it left a huge loophole for "performance-based" pay. Oracle CEO Larry Ellison, for example hauled in $76 million in stock options and other so-called "performance-based" pay in 2011 – all of it fully deductible. And contrary to Clinton era thinking, stock options do not improve performance. This became abundantly clear after the dot-com crash and the 2008 crisis, when boards helped CEOs recoup their losses by handing out boatloads of new options.

As for bipartisan, "purple" potential, Senator John McCain (R-AZ) co-sponsored a bill in 2009 that would've tightened up the loophole and former Senate Finance Chairman Charles Grassley (R-IA) has made supportive comments. There are also two recent precedents. Both the bank bailout and the health care reform legislation included $500,000 caps on pay deductibility with no performance pay exemptions for financial and health insurance executives. Guess what? The world didn't end.

3. Adopt a financial transaction tax

This is the idea of putting a very small tax on each trade of stocks, bonds, and derivatives. Tax the Wall Street casino? Fat chance, you might say. But there's actually huge momentum on this, both at the grassroots and the policy level.

About a dozen European governments have committed to coordinate such a tax. The details still need to be hammered out, but the proposal on the table is for a tax of 0.1 percent on stock and bond trades and 0.01 percent on derivatives.

Sure, you might say, but have Europeans ever met a tax they didn't like? How are you going to sell this in the land of the "free"?

One major selling point is that by taxing each trade, this tax would discourage the controversial high-speed trading that now dominates markets. The chief economist at the Commodity Futures Trading Commission, the nation's top derivatives regulator, recently found that this automated speed trading is sucking significant profits from traditional investors. And a growing number of these traditional investors are coming out in support of financial transaction taxes.

Even for tea partiers, if forced to pick from a menu of options for raising massive revenue, what do you think they'd go for? One of the numerous proposals (e.g., value added taxes) that would hit the middle class? Or one targeted at the bigtime gamblers on Wall Street who benefited the most from the bailout so hated by the tea party?

4. Close offshore tax havens loopholes

The rampant use of tax havens to stiff Uncle Sam has sparked outrage across the political spectrum. In a nationwide poll, nine out of ten small business owners said it was a problem when big businesses used offshore loopholes to avoid paying their taxes. In the same poll, in which Republicans outnumbered Democrats 2-to-1, two-thirds of small business owners said big business did not pay their fair share of taxes. Even Rush Limbaugh has acknowledged that something is wrong when General Electric pays no taxes despite earning tens of billions in profits.

Closing tax haven loopholes could raise at least $100 billion a year. To move in this direction, Congress could increase reporting requirements. Under the Dodd-Frank financial reform legislation, energy corporations will now have to report on their profits, taxes and other government payments, by nation. This should be extended to cover all corporations. The intent of the Dodd-Frank disclosure is to combat corruption, but it could also help combat tax avoidance. A recent survey of chief financial officers of multinational corporations found 75 percent worry about the reputational impact of their company's tax disclosures.

Let's not be intimidated by Grover Norquist and his irrational tax-hating minions. Obama's legacy — and our nation's economic future — will be determined by our ability to build a solid and progressive revenue base. 

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies in Washington, DC and is a co-author of the Institute's yearly Executive Excess reports on CEO pay. www.ips-dc.org Distributed via OtherWords (OtherWords.org)

Beyond the Jobs Report: A Call for a Transformational Economy

November 2, 2012 ·

Don't count on the latest round of good economic news to have much of an impact on the elections. There are very few undecided voters left and these minor changes aren't likely to change anyone's mind.

But it's still worth noting that the Bureau of Labor Statistics found  that the country gained 171,000 jobs and that unemployment inched up to 7.9 percent from 7.8 percent. Both numbers are good. Unemployment only edged up because  so many jobless Americans became confident enough to look for work again.

President Barack Obama can rightly brag about improved economic numbers in recent months. There are more jobs. Gas prices are down. The economy is modestly expanding. Consumer confidence has bounced to a four-year high and the Dow Jones Industrial Average recently hit an all-time high. Clearly, the economy is faring well under his leadership.

But, let's be honest. As tough a row as Obama has had to hoe — inheriting a deep recession and a giant budget deficit — our nation knows how to create jobs at a much greater pace and grow our economy more equitably. It's up to us, we the people, to create a better society by electing better policymakers and lawmakers.

In the 1950s, with a top marginal tax rate of about 90 percent, we had the necessary revenue to help veterans get college diplomas, to create good jobs, and to grow a middle class.

Yes, racism was an even-bigger problem then than it is now. However, the progressive taxation we had at that time generated enough revenue that most of the country's residents regardless of race, gender, or economic status could have been brought into the middle class had it not been for rampant discrimination.

The same potential exists today, even more so because we're an even wealthier country now. We can greatly expand the number of good-paying, full-time jobs with a fair and economically sound approach to our federal budget priorities and long-term debt reduction. It's time our leaders stopped cow-towing to corporate interests by masquerading as adherents to the ideology of government minimalism.

If we cut wasteful Pentagon spending, restore top marginal tax rates to Reagan levels, close corporate tax loopholes, end tax breaks that benefit only the wealthy, cancel subsidies to polluting oil and gas companies, and impose a tiny tax on speculative Wall Street transactions, we will have the revenue we need to rebuild our infrastructure, create sustainable energy sources, improve public schools, expand access to health care, and build a sustainable economy that provides all Americans with a decent standard of living.

Then, not only will we see an expansion in our economy, but the right kind of expansion — one measured by something like a Genuine Progress Indicator (GPI), rather than the Gross Domestic Product (GDP). We need to measure not just general economic expansion but our overall wellbeing.

Either Obama or Romney can do this. Either a Democratic or Republican House and Senate can do this. It's not about politics. Or ideology. This isn't rhetoric and this isn't short-term analysis of monthly jobs numbers. This is common sense. And it's the transformational approach we need.

Karen Dolan is a fellow at the Institute for Policy Studies (www.ips-dc.org), where she's studying alternative metrics to the GDP, such as Maryland's Genuine Progress Indicator.

The Poison Pill of Tax Cuts

October 21, 2012 ·

A quiz: Which candidates and presidents said the following? (Answers below.)

  1. "To repair the nation’s tax code, marginal rates must be brought down to stimulate entrepreneurship, job creation, and investment."
  2. "We must follow through on the policies that have given us 25 months of economic growth by simplifying our cumbersome tax codes and lowering rates still further."
  3. "I think if you’re going to have tax relief, everybody ought to get it. And, therefore, wealthy people are going to get it."
  4. "Read my lips: no new taxes.” 

The presidential candidates are debating George W. Bush's 2001 and 2003 tax cuts, which were supposed to expire in 2010. Obama wants restore tax rates on the wealthiest families to earlier levels. Romney’s campaign is standing up for the top 2 percent with incomes over $250,000, and then sweetening their pot by abolishing the Alternative Minimum Tax and estate taxes too. His plan would give people earning over a million dollars an average tax break of $160,000 a year.

Romney is running on the GOP's 30-year-old gameplan: promise tax cuts that you swear will pay for themselves while helping the middle class. Since President Ronald Reagan first used this strategy, it’s given the Republican Party 20 years in the White House, versus 12 for the Democrats.401(K)2012/Flickr

It’s like a drug. The high of tax-cut promises fades, and four years later we need another hit. The economy would be even worse if everyone’s taxes fell every time a Republican gets elected. The secret is that for most of us, our total taxes have remained about the same, while rich people’s taxes have been cut and cut. 

Now, Romney is offering us the same old cure-all: if the rich could just pay less in taxes, they would create more jobs and boost government revenue. How has this worked for us? 

From the end of WWII through the Carter administration, U.S. federal debt as a percentage of GDP declined or stayed stable. Then came Reagan's "voodoo economics." During his eight years in office, tax rates fell and the debt nearly tripled to $2.6 trillion. His lasting popularity, despite the red ink, persuaded Dick Cheney to say, “Reagan proved deficits don’t matter.” The debt grew another 55 percent with President George H.W. Bush, and rose by 86 percent George W. Bush. 

In contrast, Bill Clinton gradually slowed the debt's growth and actually brought in surpluses in his second term in office, for a total 37 percent increase over his eight years in office. 

Under Obama, the debt has grown by at least 35 percent so far, expanding at the slowest pace since the Eisenhower administration if you adjust for inflation. 

Romney’s continued protection of the richest 2 percent would cost nearly another trillion dollars over the next decade. Republicans may ridicule “Tax and Spend” Democrats, but that beats the “Spend and Spend and Charge it to our Children and Grandchildren" approach. 

Tax cuts aren’t a magic bullet for job creation, either. Reagan did the best of the tax-cutters, with 2.06 percent growth in jobs, Bush I got only 0.6 percent, and Bush II a measly 0.1percent growth. None were as successful as Clinton’s 2.38 percent and Carter’s 3.06 percent. 

Tax cuts have hurt the middle class. Median household net worth sank to $57,000 in 2010, down from $73,000 in 1983. It would have been $119,000 had wealth grown equally across households in those years. The average wealth of the top 1 percent, on the other hand, grew to $16.4 million, up from $9.6 million in 1983. This is due in large part to the growing income inequality divide, as well as the stock market's sharp rise. So long to a powerful country of successful working families. 

The Republicans' tax cut mythology is propped up by billionaire donors and organizations like Grover Norquist’s Americans for Tax Reform. Currently, 238 House members and 41 Senators have signed Norquist's pledge to never raise taxes. 

In the real world, many government programs help the middle class, like the Child Tax Credit, the Earned Income Tax Credit, health care and college grants. Cutting taxes and government hurts people in the middle and on the bottom more than the wealthy. A hundred years ago, G.K. Chesterton wrote, “The poor have sometimes objected to being governed badly. The rich have always objected to being governed at all.” 

We owe it to our children to be responsible adults and pay for our government the way our parents and grandparents did. The country runs better when we do.

 Answers

  1. Mitt Romney’s website, Restore America’s Promise: More Jobs, Less Debt, Smaller Government February 22, 2012
  2. Ronald Reagan, radio adress, January 26, 1985
  3. George W. Bush, St. Louis debate, October 17, 2000
  4. George H. W. Bush, Republican National Convention, 1988



    Tim Butterworth is an Institute for Policy Studies associate fellow. IPS-dc.org 
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